USD/CHF gains to near 0.7700 as US Dollar firms, US Manufacturing PMI data in focus
- USD/CHF gains ground to near 0.7695, bolstered by a firmer US Dollar.
- Iran’s national security chief said the country will not negotiate with the US.
- The US ISM Manufacturing PMI report for February is due later on Monday.
The USD/CHF pair gathers strength to around 0.7695 during the early European trading hours on Monday. The Greenback edges higher against the Swiss Franc (CHF) as the hotter US January Producer Price Index (PPI) report reinforced the case that the Federal Reserve (Fed) will hold interest rates steady at its upcoming March meetings.
Data released by the Bureau of Labor Statistics on Friday showed that headline PPI rose 0.5% MoM in January, compared to 0.4% in December. This figure came in above the market consensus of 0.3%. Additionally, the core PPI, which excludes volatile food and energy prices, climbed 0.8% MoM in January versus 0.6% prior, better than the forecast of 0.3%.
Markets largely expect the Fed to leave the interest rate unchanged until the summer, though US President Donald Trump has pushed for lower rates.
On the other hand, the CHF receives some support from its safe-haven status following joint US-Israeli strikes in Iran over the weekend, which reportedly killed Supreme Leader Ayatollah Ali Khamenei. Trump said on Monday that combat operations will continue in Iran until America’s objectives are met.
Meanwhile, Iran’s national security chief, Ali Larijani, said the country will not negotiate with the US, in response to reports that he reached out to Washington via Oman mediators, per Bloomberg.
Traders brace for the ISM Manufacturing Purchasing Managers Index (PMI) report for February, which will be released later on Monday. In case of a stronger-than-expected outcome, this could lift the Greenback against the CHF.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.
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